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Gary Townsend
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Gary Townsend - Founding member and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Futures Follow Europe Lower 0 comments
    Feb 6, 2012 8:49 AM | about stocks: PNC, CMA
    This morning. U.S. equity markets are in a confirmed uptrend. The uptrend began on November 28th, when the SPX opened at 1158.67, but the SPX 50-day moving average has trended higher since October 13th. Technical indicators are generally positive. All major indexes are above their respective 20-, 50-, 100-, and 200-day moving averages. Notably, on January 31st, the SPX 50-day moving average crossed above the 200-day moving average. Also on January 31st, the SPX 200-day moving average recaptured an upward trend, ending a 5-month long decline.

    U.S. economic news dominated overseas equity developments today, in the absence of material news and developments. Greece continues to circle a final settlement of its debt, gut its next bond payment isn't due until March 20th, so it's have little material impact on markets. The better than expected jobs report has focused most commentary on the implications for faster economic growth and overtly accommodative central bank policies. In Asia, equity markets closed mixed, with greater strength in Japan. European exchanges are moderately lower, but off the day's worst levels. The dollar is mixed, and slightly weaker against the euro. U.S. equity options markets suggest a bearish to neutral short-term outlook. Commodities prices are mixed. U.S. Treasury yields are mixed, with the 10-year at 1.926%, up from 1.922% the prior day. U.S. repo rates are at 12 bps.

    The ECB's bank lending facilities have eased interbank lending and associated liquidity problems. Overnight and 3-month LIBO remain elevated, and Euribor-OIS spreads remain near 2011 highs, but are trending lower. Also, the 3-month Euro basis swap is now at its best levels since early August and less than half its worst level of late December.

    There are no U.S. economic reports scheduled today. After a fair value adjustment of +2.20 points, March SPX equity futures are at 1334.70, down -7.00 points. The SPX opens at 1344.90, -1.87% below its May 2, 2011, multi-year 1370.50 intraday high, but +2.78% and +6.30% above its respective 20- and 50-day moving averages and +8.79% and +6.95% above its respective 100- and 200-day moving averages. Next resistance is at 1351.42. Next support is at 1332.29.

    Friday. Fortified by a strong January employment report, U.S. equities surged ahead strongly on heavy volume. High beta market segments continued to benefit from market rotation. The Nasdaq had the best +1.61% gain, followed by the SPX, NYSE composite, and DJI, which gained +1.46%, +1.45%, and +1.15%, respectively. Leaders were financials, oil and gas, and industrials, which gained at least +1.73%. Laggards were telecommunications, health care, and utilities, which ended up at least +0.20%. Trading desks reported an active session with broader participation and some chasing of stocks to the upside. Nonetheless, sentiment remains skeptical.

    From its prior 1325.54 close, the SPX opened at 1335 and traded through 1340 within the first half hour. The SPX traded within a narrow range through the rest of the day, to a late intraday high of 1345.34 before settling at 1344.90 at the close. For a 9th consecutive day, all indexes closed above their respective 20-, 50-, 100-, and 200-day moving averages. Market breadth was positive. NYSE volume rose +11.7% to 1.08x the 50-day moving average. Volatility opened more than -4.50% lower at 16.85 on the VIX, but notably trended higher through most of the day, to an intraday high of 17.32 before fading to close at 17.10, down from 17.98 at the previous close. At 122.14, the CBOE put/call skew remains above a neutral range.

    Technically, the day was positive as the SPX closed well above the prior week's January 26th 1333.47 intraday high, which is now immediate support. Other important support levels include 1312 (-23.6% Fibonacci retrace of the rally since December 19th), 1308 (20-day moving average), 1297 (the January 12th high), 1293 (the October 27th high), and 1292 (a -38.2% Fibonacci retrace). Immediate resistance is 1350-56, then 1370.58, the May 2nd 2011 intraday high and SPX multi-year high point.


    The December 28th distribution day grew stale. They now number 3 on the SPX and DJI, and 2 on the Nasdaq and NYSE composite. On the BKX, the count remains 4.

    In Asia, equity markets closed mixed, with better strength in Japan. In Japan, the NKY closed up +1.10% on a -9.08% decrease in volume. In China, the HSI closed down -0.23% on a +14.3% increase in volume. The SHCOMP closed up +0.03% on a -4.07% decrease in volume. Commentary focused on Friday's strong U.S. jobs reports, and an IMF report that warned of slowing Chinese economic growth.

    In Japan, the NKY closed at 8,929.20, compared to 8,831.93 the prior day. The index closed +1.10% and +3.12% above its respective 20- and 50-day moving averages. The index opened at 8,940 and rose to an intraday high of 8,949.32 before retreating back to a mid-day intraday low of 8,916.94. The afternoon trade was mixed, with a retest of resistance at 8,945, and support at 8,920 before strengthening modestly into the close. Market segments closed mixed. Leaders were industrials, consumer goods, and consumer services, which rose at least +1.59%. Financials gained +1.25%. Laggards were telecommunications, oil and gas, and technology, which declined at least -0.33%.

    In China, the Hang Seng closed at 20,709.94, down from 20,756.98 at the prior close. The index opened higher to test resistance at 21,000 with an intraday high of 21,015.55. The test was unsuccessful, and the index trended lower through mid-afternoon, back to an intraday low of 20,633.13 before improving modestly into the close. The index is +5.35% and +9.40% above its respective 20- and 50-day moving averages. Market segments were mixed. Leaders were basic materials, consumer services, and industrials, which closed at least +0.82% higher. Financials rose +0.05%. Laggards were oil and gas, consumer goods, and telecommunications, which fell at least -1.07%. In Shanghai, the SHCOMP closed at 2,331.14, up from 2,312.56 at the prior close. The SHCOMP opened modestly higher and traded above and below breakeven through most of the session to an early session intraday high of 2,341.32. Investor enthusiasm waned in late afternoon, however, when the index fell back to its intraday low of 2,317.42, where it found support and rallied into the close to end with a modest gain. Most market segments closed higher. Leaders were health care, consumer goods, and technology, which rose at least +0.59%. Laggards were oil and gas, which rose +0.02%, and telecommunications and financials, which closed at least -0.42% lower.

    In Europe, equity indexes opened lower and are moderately lower, but off their mid-morning lows. Commentary focused on 4Q2011 earnings and the interminable Greek debt negotiations. The Euro Stoxx 50, FTSE 100, and DAX are down -0.51%, -0.16%, and -0.23%, respectively. Compared to the prior day's 2,515.15 close, the Euro Stoxx 50 trades at 2,502.10, compared to a 2,486.95 intraday low and 2,508.38 intraday high. The index is +3.66% and +6.90% above its respective 20- and 50-day moving averages. Market segments are at least -0.02% lower. Leaders are consumer goods, technology, and utilities. Financials are down -0.69%. Laggards are oil and gas, industrials, and consumer services, which are down at least -0.70%.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    • Recent interbank lending rates suggest that the substantial stress, evident in the latter half of 2011 and centered on the health and liquidity of Eurozone banks, has peaked and is easing. USD LIBOR fell to rose to 0.14150%, from 0.14200% the prior day, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.52325%, down from 0.52700% the prior day and from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread fell to 41.12 bps, down from 41.55 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 75.40 bps from 76.05 bps Thursday and December 27th high of 98.80 bps. A fall in the LOIS indicates a decreased intra-bank lending risk premium.
    • The Euro 3-month basis swap continues to improve, rising to -70.2500 bps, at levels of early August, from -70.6800 bps the prior day, and up from a trough of -147.00 bps on December 14th.
    • The U.S. government overnight repo rate fell to 12.0 bps, down from 14.0 bps the prior day, but off from the August 2nd high of 33 bps.
    • U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.226% and 1.926%, respectively, compared to 0.230% and 1.922% Friday. The yield curve widened to +1.700%, compared to +1.692% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.910% on February 4, 2011.
    • The U.S. dollar is mixed, slightly weaker against the euro and British pound, and slightly stronger against the Japanese yen. The dollar trades at US$79.353, compared to the US$79.513 intraday high and US$78.924 at the prior day's close, and mixed against its US$79.857 50-day, US$78.724 100-day, and US$76.795 200-day averages. The euro trades at US$1.3071, compared to an intraday high of US$1.3030, and compares to a close of US$1.3158 Friday and US$1.3144 the day prior. The euro trades worse than its US$1.3053 50-day and US$1.3342 100-day average. In Japan, the dollar trades at ¥76.57, compared to ¥76.60 Friday and ¥76.22 the prior day. The yen trades better than its 50-day moving average ¥77.32.
    • Commodities prices are mixed, with mixed energy, lower precious metals, but higher aluminum and copper, and higher agriculture prices.

    Volatility, Skew:
    • The VIX ended at 17.10, down -4.89% from 17.98 at the prior close. The VIX is -12.7% below its 19.58 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up +8.02% to 25.42, compared to 23.53 at the prior day's close. The V2X index trades -4.19% below its 26.53 20-day moving average, -23.8% below the 33.37 30-day high, and +8.35% above the 23.46 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 22.94, up +5.37% from 21.77 the prior day. The VHSI index trades +0.32% below its 22.87 20-day moving average.
    • CBOE skew fell -0.10% to 122.14 from 122.26 at the prior day's close, and above a neutral (115-120) range. The index tracks market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal. A spike to 130, as on January 18th close, correlates well with short-term market peaks.

    U.S. news and economic reporting:

    · There are no scheduled economic reports today.

    Overseas news: Today, the deadline issued by European Commission, European Central Bank, and the IMF (referred to collectively as the "troika") to Greece for further austerity measure implementation has passed without action. In January, German factory orders rose more than expected, increasing +1.7% compared to +1.0% estimates. Over the week-long Lunar New Year holiday, sales growth in China disappointed expectations and came in at the lowest increase since 2009. Today, the IMF cut its forecast for China's GDP growth to +8.25% from 9.0% and said growth could slow to only +4.25% should Europe's debt crisis worsen.

    Company news/ratings changes:

    · PNC - downgraded neutral at BMO

    · CMA - upgraded to buy at RBC

    4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 266 S&P500 companies that reported earnings to date, 67% (178 out of 266) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +2.9% (versus a historical average of +2%). EPS is up +3.4% over the prior year. Though challenged in the current operating environment, 72% of companies reported increased revenues over the prior year and 57% beat revenue estimates. In the fourth quarter of 2011, analysts estimate the SPX will earn $24.34 per share, compared to $25.19 and $22.25 per share in 3Q11 and 4Q10, a -3.4% and +9.4% change, respectively.

    With all 24 BKX members reporting fourth quarter earnings, 42% beat operating EPS estimates, with aggregated results disappointing by -16.7%, while 46% beat revenue estimates, with aggregated results missing by -0.9%. EPS is down by -20.4% over the prior year while revenue has decline by -3.8%. In the fourth quarter, the BKX earned $1.25 per share, compared to $1.24 and $0.91 per share in 3Q11 and 4Q10, a +0.8% and +37.4% change, respectively.

    Valuation. The SPX trades at 12.9x estimated 2012 earnings ($104.65) and 11.4x estimated 2013 earnings ($117.94), compared to 12.7x and 11.2 respective 2011-12 earnings Friday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -3.7%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.2% and +24.2%, respectively.

    Large-cap banks trade at a median 1.40x tangible book value, and 10.9x and 9.6x 2012and 2013 consensus earnings, respectively, compared to 1.35x tangible book value and 10.5x/9.2x 2012/2013 earnings yesterday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.34 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.9% and +46.6% increase, respectively.

    Options. Options markets are neutral to bearish. Composite options markets are neutral, index options markets are neutral, and equity options markets are neutral. The composite put/call ratio closed at 0.74, compared to 0.87 the prior day and below its 5- and 10-period moving averages of 0.85 and 0.90, respectively. The index put/call ratio closed at 1.02, compared to 1.31 the prior day, and below the 5- and 10-period moving averages of 1.31 and 1.35, respectively. The equity put/call ratio closed the day at 0.52, compared to 0.63 the prior day, below its 5- and 10-period moving averages of 0.62 and 0.64, respectively.

    Price Exhaustion/Trend Reversal. On a daily timeframe, technical price exhaustion metrics show the SPX reached a potential upward price exhaustion level on January 18th and 11th, the first such signals since April, while S&P futures reached full upward price exhaustion on January 23rd. Alternative calculations that adjust for the current uptrend's strength shows S&P futures reached upward potential price exhaustion last Friday. Yet another metric shows the SPH2 within one higher close of potential price exhaustion. Intra-day timeframes of 120- and 60-minute intervals show the SPX and BKX reached multiple levels of potential price exhaustion most recently as January 25th and 12th, respectively. A reversal in the SPX from these levels could extend as low as 1170.

    NYSE Indicators. Volume rose +11.7% to 905.31 million shares, +1.08x the 50-day moving average, from 810.39 million shares Thursday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,713 (compared to +410 the prior day), or 3.64:1. Up volume led down volume by 6.19:1.

    SPX. On higher volume, the SPX rose +19.36 points, or +1.46%, to 1344.90, the 13th straight close above 1300 and the highest level since July 22nd. Volume rose +13.9% to 665.39 million shares, up from 584.45 million shares Thursday and above the 649.47 million share 50-day moving average. For the 30th consecutive day, the SPX closed above its 50-day moving average (1265.18) and remained above its 200-day moving average (1257.47) for the 27th time in the past 28 sessions. The SPX closed above its 200-week moving average (1133.40) for the 82nd straight session.

    From its prior close at 1325.54, the SPX opened higher to 1335, immediately setting the intra-day low. By 10:20, the index rose to 1343 and held its solid gains and at the low 1340's level through the close. The intra-day high of 1345.34 came 1 minute prior to the bell.

    The SPX closed above all major moving averages, above 1200 for the 44th straight session and above 1300 for the 13th session. The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th. After peaking on June 6th at 1317.97, the 100-day moving average crossed below the 200-day average on September 7th. On December 22nd, the 100-day set a low at 1202.28, and began an upward trend. The 200-day moving average appears to have troughed and is increasing. The 50-day moving average climbed above the 200-day moving average on January 31st, having been below that average since August 11th. For the 31st straight session, the SPX closed (by +2.78%) above its 20-day moving average (1308.53). The index closed (by +6.30%)above its 50-day moving average for the 31st straight session. The index closed (by +8.79%) above its 100-day moving average (1236.29) for the 45th straight session. The SPX closed +6.95% above its 200-day moving average for the 26th time in the past 28 sessions. All moving averages rose. The directional momentum indicator was positive for the 31st straight session, and the trend is strong. Relative strength rose to 73.60 from 67.56, an overbought range. Next resistance is at 1351.42; next support is at 1332.29.

    BKX. On higher volume, the KBW bank index rose +1.43 points, or +3.28%, to end at 45.05, its 22nd straight close above 40 and its highest close since August 1st. Volume rose +64.9% to 91.69 million shares, up from 55.60 million shares Thursday and above the 80.55 million share 50-day average. The BKX closed +4.82% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, and -22.3% and -19.0% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

    Financials were the market's best performing segment, and large-cap banks outperformed regional banks. From its prior close of 43.62, the BKX gapped higher at the open to 44.20, immediately setting the intra-day low, by 10:15, the index quickly rose to 45.00, a level which halted momentum. The index traded between 44.90 and 45.00 through the close. A rally in trading's closing minutes lifted the index above 45.00 and set the intra-day high of 45.06 just prior to the bell. The index recorded its strongest gain since December 20th.

    Technical indicators are mixed, but improving. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +38.36% from the 32.56 October 4th intra-day low compared to a +25.22% rebound in the SPX. However, the BKX is still -19.0% below its 2011 high, compared to the SPX which has corrected only -1.4%. Moving averages alignment is mixed, as the 20- and 50-day moving averages (43.14 and 40.25 respectively) moved above the 100-day moving average (39.07), and each average is rising. The 200-day moving average (42.32) continues to trend lower. On December 16th, the 50-day average crossed above the 100-day moving average for the first time since April 25th. The 50-day remains below the 200-day moving average, as it has since June 16th. For the 26th time in the past 27 sessions, the 20-day closed (by +2.89 points) above the 50-day, but the gap contracted slightly. The 50-day moving average closed (by -2.07 points) below the 200-day moving average for the 164th straight session, but the gap continues to narrow. The 100-day moving average closed (by -3.25 points) below the 200-day moving average for the 142nd straight session, but the gap is narrowing. The BKX closed (by +4.43%) above its 20-day moving average for the fifth straight session. The index closed (by +11.93%) above its 50-day moving average for the 29th straight session. The index closed (by +15.31%) above the 100-day moving average for the 30th straight session. The index closed (by +6.45%) above its 200-day moving average for the 12th time in 13 sessions. The index closed below 50.0 for the 171st straight session but above 40.0 for the 23rd straight session. The directional movement indicator was positive for the 28th consecutive session, and the trend is strong. Relative strength rose to 69.92 from 62.75, the high end of a neutral range. Next resistance is 45.47; next support at 44.21.

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